The Cup And Handle pattern, and how to use it
The cup and handle is a chart pattern that is formed by a “cup” shaped pattern and a subsequent “handle” that looks like a small flag or triangle. This pattern is created when the price of an asset experiences a significant price move, followed by a period of consolidation. The cup and handle is a bullish pattern, which means that it is typically seen as a bullish sign and indicates that the asset’s price is likely to continue rising.
To form a cup and handle, the asset’s price will typically make a “cup” shaped pattern, with the left side of the cup representing a significant price move and the right side representing a period of consolidation. The handle is then formed as the price continues to consolidate, typically forming a small flag or triangle shape. The pattern is typically completed when the price breaks through the resistance level, at which point it is likely to continue rising as traders enter into long positions.
One of the key characteristics of the cup and handle pattern is that the trading volume tends to decrease as the pattern progresses. This is because the price is consolidating within a small range and there is less activity from traders. However, once the price does break through the resistance level, trading volume tends to increase as traders enter into long positions and push the price higher.
In order to trade the cup and handle pattern, traders should look for the following characteristics:
- A “cup” shaped pattern: This is a pattern in which the asset’s price experiences a significant price move, followed by a period of consolidation.
- A “handle” shape: This is a small flag or triangle shape that forms as the price continues to consolidate.
- Decreasing trading volume: As the pattern progresses and the price consolidates within the cup and handle pattern, trading volume should decrease.
- A breakout: Once the price breaks through the resistance level, traders should enter into long positions and expect the price to continue rising.
It is important to note that the cup and handle pattern is a bullish pattern, but it is not a guarantee that the asset’s price will rise. As with any trading strategy, it is important to use risk management techniques and to always be aware of the potential for losses.
